FDIC Moves to Block Stablecoin 'Pass-Through' Insurance

The Federal Deposit Insurance Corp. is taking steps to close a potential loophole in the GENIUS Act, which prohibits direct FDIC coverage for stablecoins like USDC and USDT. According to FDIC Chairman Travis Hill, the agency will propose a rule explicitly barring stablecoin holders from 'pass-through' insurance, even through third-party financial firms.

Hill said this move aligns with the intent of the GENIUS Act, which distinguishes stablecoins from bank deposits that carry up to $250,000 in federal guarantees. He noted that current pass-through rules require end-customer identities to be readily ascertainable, a standard not commonly met by large stablecoin arrangements today.

The FDIC's proposed rule comes as the banking sector expresses growing concern over stablecoin competition. A recent Jefferies report estimates that stablecoin growth could generate 3% to 5% core deposit runoff at U.S. banks over five years, cutting average bank earnings by roughly 3%. The sector's market cap has grown from $184 billion in 2022 to around $314 billion today.